Compound Interest Calculator
Compound interest is the reason a small monthly deposit started at 25 outperforms a large one started at 45. The growth is not linear. Each year's return is earned on every previous year's return, and the curve steepens with time.
Savings and growth
Deposits are assumed to be made at the end of each month.
For a savings account use the APY. For stocks, 6% to 8% after inflation is a common planning assumption.
Frequency matters far less than the rate and the number of years.
Growth curve
Notice how flat the first few years look and how steep the last decade becomes. That shape is the entire argument for starting early.
Year by year
| Year | Total contributed | Interest earned | Balance |
|---|---|---|---|
| 1 | $13,600 | $841 | $14,441 |
| 2 | $17,200 | $2,002 | $19,202 |
| 3 | $20,800 | $3,508 | $24,308 |
| 4 | $24,400 | $5,383 | $29,783 |
| 5 | $28,000 | $7,654 | $35,654 |
| 6 | $31,600 | $10,349 | $41,949 |
| 7 | $35,200 | $13,500 | $48,700 |
| 8 | $38,800 | $17,138 | $55,938 |
| 9 | $42,400 | $21,299 | $63,699 |
| 10 | $46,000 | $26,022 | $72,022 |
Assumes a constant rate of return with no fees, taxes or withdrawals. Real returns vary year to year and can be negative. Investment fees reduce the effective rate, and a 1% annual fee compounds against you just as reliably as returns compound for you.
The formula
For a lump sum: A = P(1 + r/n)^(nt), where P is the principal, r the annual rate, n the compounding frequency and t the number of years. Regular deposits add a second term, which is why this calculator shows contributions and earnings separately.
Compounding frequency matters less than you think
Moving from annual to monthly compounding on a 7 percent return changes the result by a fraction of a percent. Moving from monthly to daily changes even less. The rate and the time horizon matter far more than the frequency.
Time is the ingredient you cannot buy later
Investing $300 a month from age 25 to 35 and then stopping leaves roughly the same balance at 65 as investing $300 a month from 35 to 65, ten years of contributions doing the work of thirty. That gap is the entire argument for starting early.
Frequently asked questions
What interest rate should I use?
For a savings account, use the actual APY. For a diversified stock portfolio, 6 to 8 percent after inflation is a common planning assumption. Using a rate that is too optimistic is the surest way to build a plan that fails.
What is the difference between simple and compound interest?
Simple interest is paid only on the original principal. Compound interest is paid on principal plus previously earned interest, so the balance grows exponentially rather than linearly.
What is the Rule of 72?
Divide 72 by your annual rate to estimate how many years it takes to double your money. At 8 percent, that is about nine years.
Does inflation eat into compound growth?
Yes. A 7 percent nominal return with 3 percent inflation is roughly a 3.9 percent real return. To project purchasing power rather than nominal dollars, subtract inflation from your rate.
This calculator is an educational tool and does not constitute financial, tax or legal advice. Results are estimates based on the inputs and assumptions described above. Verify important figures with a qualified professional or the relevant government agency before acting on them.